Competition bad, less competition better? How industry structure and competition affect investment and welfare in infrastructure industries

Abstract

Competition is often seen as important for improving investment incentives and consumer welfare particularly in deregulated infrastructure industries like electricity gas water and telecommunications. Richard Meade presents research on how industry structure and competition interact to affect investment and welfare in imperfectly competitive environments. Relevant features of industry structure include vertical integration/separation legal unbundling and the presence of forward contracts and wholesale markets. He highlights situations in which reduced competition and sometimes outright anti-competitive behaviour is associated with improvements in investment and welfare. Also some industry arrangements can favour investment while harming welfare. While this varied landscape complicates the tasks of policymakers regulators and competition authorities lessons are drawn to help them identify the relevant trade-offs and selected New Zealand applications are discussed.